Developing a successful life insurance settlement business line

For decades, the life settlement industry has had a complex relationship with agencies and broker-dealers. The business processes associated with the secondary market for life insurance policies have often been arduous and difficult. As the life settlement industry approaches its fourth decade, it still faces reputational challenges and skepticism from the traditional life insurance sector. However, there's a growing readiness among agencies to embrace life settlements as a full-fledged business line. Here are critical steps and considerations for agencies and broker-dealers looking to develop a successful life insurance settlement business line.

Venturing into the life settlement market offers significant opportunities for agencies and broker-dealers. However, it requires a thorough understanding of the industry's landscape, including the source of funding, the roles of various players, and the importance of solid partnerships and marketing strategies. By focusing on these key elements, agencies can establish a successful and ethical life settlement business line, benefiting both their clients and the industry. We also know that some agencies have felt burned in the past, dealing with unscrupulous brokers and agents who have not honored commission-sharing arrangements. We know we must rebuild these relationships.

Understanding the players on the life settlement stage

The role of provider companies. Provider companies are the primary licensed entities managing the paperwork of transactions – very much like a real estate closing. They play a crucial middleman role, and every transaction requires a provider. Providers are typically not the source of capital.

Life settlement brokers. Brokers can act as intermediaries, sometimes setting up policy auctions among providers. Brokers are not required in a life settlement transaction, and agencies that choose to work with brokers must vet them thoroughly to understand their role, added value and track record.

The importance of funding sources. It’s critical to understand who the owner of your client’s policy will be. Institutional funds, private equity firms or financial institutions are typically the investors in policies, and are the industry's driving force. Agencies should aim to establish a clear understanding of these entities and work to establish relationships with direct funding sources to secure the best deals for their clients.

Key strategies in life settlements

Follow the money. Understand the source of funds. Many who claim to be life settlement professionals may lack a direct relationship and strong ties to funding sources. This often leads to overpromised and underdelivered deals.

Solid agreements and understanding. Establish clear agreements on cost-sharing, referral fees or commission structures. Agencies must be wary of unscrupulous brokers who might bypass them for extra commissions.

Marketing potential. Agencies hold valuable data that can identify potential life settlement clients. Effective marketing to these clients is essential and is the key to a successful business line. Agencies should partner with experienced professionals who understand the life settlement industry and provide high-quality and effective marketing support.

Guarding against greed. The industry has been marred by greed, with instances of agencies being gouged and agents shortchanged. Agencies must be diligent in choosing partners and establishing fair and transparent fee-sharing agreements.

Marketing and systematic approach

Marketing support. Agencies, especially those with smaller marketing operations, need robust marketing and back-office support to stand out in an information-saturated market.

Systematic identification and transparency. Agencies must systematically identify potential clients, clearly explain the industry, appraise policy values, and efficiently finalize and effectively close deals.

Respecting the hierarchy

In the complex and interwoven world of life settlements, maintaining a respectful and clear hierarchy between agencies and broker-dealers is not just a courtesy — it's a necessity for sustainable business relationships. Tensions have historically emerged when some agencies feel sidelined by brokers, who may bypass them in transactions. This practice not only strains professional relationships but also undermines the foundational trust upon which these partnerships are built.

To rebuild and foster goodwill, agencies and broker-dealers must establish transparent and mutually agreed-upon objectives regarding referral fee structures and commission-sharing agreements at the very beginning of their relationship. This clarity helps in delineating responsibilities and benefits for each party, ensuring a smoother transaction process.

Agencies should have a firm grip over this crucial aspect of the transaction. In instances where a broker circumvents an agency or proposes an opaque commission structure, it should be seen as a significant breach of trust. Such actions must serve as a red flag, prompting immediate reassessment and, if necessary, termination of the partnership. This decisive approach signals a zero-tolerance policy for practices that can jeopardize the integrity of the relationship. All involved parties must recognize and uphold this hierarchy, adhering to the adage of not "biting the hand that feeds them." By doing so, the industry can ensure a balanced ecosystem where trust, respect and mutual benefit drive business rather than opportunism and short-term gains.

A rising tide lifts all boats

The life settlement industry has the potential to elevate itself significantly in the coming years. With increasing name recognition and national players promoting the industry, the focus must be on protecting agencies from market friction and dishonest practices. The future of the industry relies on agencies; if they experience continued challenges, the ultimate loser will be the consumer who is denied this financial option.

Wm Scott Page, is a life insurance policy appraisal expert, published author and CEO at policyappraisal.com and WeBuy75.com. He may be contacted at [email protected].

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